Greater Number of Companies Say They Seek More Office Space

There’s been a reversal in office space demand, based on a renewed survey from MRI Software and CoreNet Global, which showed 42% of respondents reported that they plan to lease more space in the coming months.

The contrasts with less than 10% who said that in December 2022, 11% in August 2021, and 9% in March 2021.

This finding is based on responses from more than 1,300 real estate occupiers globally.

Survey participants also said there has been limited seating capacity for their workforces, indicating a priority to improve their common spaces and on-site amenities to attract employees back to the office.

“Many organizations are discovering that creative use of space and appealing work environments can be employee perks,” Brian Zrimsek, Industry Principal at MRI Software, said in prepared comments.

“Overall, the findings are positive for the office real estate market.

“Commercial landlords and leasing agents can take comfort in the anticipated expansions of space. But it’s also clear that attitudes and policies are continuing to shift, and the labor market will influence the extent to which employers will allow flexibility or improve their office environments.”

One market that is seeing demand for more office space is Nashville.

John Mudgett, SVP in Foundry’s Nashville office, tells GlobeSt.com that Nashville is still experiencing a significant volume of leasing activity; however, the leasing activity has evolved from large corporate leases pre-pandemic to leases for small and medium-sized firms that are growing rapidly.

Companies are growing faster than anticipated for two reasons both because the capital markets relationships are strong here, and the talent pool is deep due to the market’s desirability.

One example is a local freight logistics company Transloop, which has quadrupled in size since a few key executives relocated from Chicago to Nashville. Another example is Two x Four, an advertising agency based in Chicago that has recently planted a flag in a premier building in Nashville’s urban core.

“Companies from outside the market keep moving to Nashville and growing their local offices because of the demand,” Mudgett said.

“These small to medium-sized tenants are extremely nimble and resourceful, looking for the highest quality move-in ready space with flexible terms that can accommodate their continued growth trajectories, most of which will be doubling and tripling in years to come.

“There are several ways to negotiate this into tenant leases ranging from right-of-first refusals, must-takes, expansion space, shorter-term leases, and/or seeking out large landlords that can accommodate their growth within a portfolio.”

Thomas G. Koelzer, Partner at Tenant Advisors / CORFAC International, tells GlobeSt.com that companies increasing their office space could be doing so because they aggressively downsized during the pandemic, but are now finding that they gave up too much space.

“Many are finding that working from home doesn’t always work from a productivity or accountability perspective,” Koelzer said. “Others are beginning to enforce their in-office attendance requirements, increasing their daily headcount. Combine that with some companies adding staff, and the result is a need for more space.”

Agreeing is Patrick Kiefer, executive vice president, NAI Hiffman/Hiffman National, who tells GlobeSt.com, “This survey is the beginning of the correction that we have been expecting. Many employers who gave up a significant portion of their office footprint are now seeing that their production levels and company culture are lower than pre-pandemic levels and are trying to find that balance between a work-from-home strategy and required days in the office.”

Koelzer said in the event the unemployment numbers begin to rise, those employers may be building out for those future employees who may be forced to be in the office or lose their jobs.

Petra Durnin, Head of Market Analytics at Raise Commercial Real Estate, tells GlobeSt.com that the growth in leasing activity isn’t limited to just Class A towers and companies expanding a current footprint in traditional office space in a single location.

“The widespread adoption of the hybrid work style has created opportunities for companies to expand into multiple locations and access previously untapped talent pools. These post-pandemic changes have reinvigorated the search for unique office space that fits individual companies’ needs.”

There are also hints that office valuations may be impacted, Michelle Landers, Executive Director, ULI Boston/New England, tells GlobeSt.com. “As more and more people return to office work, for at least part of the week, the value of a downtown office location also increases. In Boston, we are amid a shuffling of tenants like with a few companies moving from the edge of downtown to its heart. Firms have an incredible opportunity to rethink their needs as we head to the new normal.”

But Howard Schmidt, Vice President, Avison Young, tells GlobeSt.com, cautions this trend is still in the early days and that while this survey is very encouraging, time will tell if tenants actually step up and start signing larger leases.

“Expansions will depend on industry sectors and what markets they are in,” Schmidt said. “If this survey is accurate, then there has never been a better time to be a growing tenant in the marketplace. Landlords have been rolling out the red carpet, concessions, extremely favorable terms, and I expect overall rates to start coming down in 2024 with the plethora of space that is on the market.”